What is Stag
Stag is a slang term for a short-term speculator, equivalent to a day trader who attempts to profit from short-term market movements by quickly moving in and out of positions. Day traders, or stags, typically require access to a lot of liquid capital in order to fund their positions, since they may be attempting to gain returns on very small price movements. Stags will often use techniques associated with technical analysis as the basis for their trading decisions, since long-term fundamental analysis typically does not help when looking to make quick trading decisions over the course of hours or minutes.
BREAKING DOWN Stag
A stag specifically refers to a speculator who buys and sells stocks in short timeframes to make quick profits. A stag investor assumes that the price of a stock will rapidly increase over the short-term, within the first few hours or days, and adopts an investment strategy that is the opposite of a long-term buy and hold strategy.
Stag investing generally requires large upfront investments. Traders engaging in stag strategies include both individual investors and institutions. In order to profit from the small short-term price movements associated with stag investing, traders will generally buy large blocks of stocks.
Initial public offerings provide an ideal opportunity for stag investing as large gains can often be expected when shares are issued. Large purchases and bullish speculation around an IPO can also help to inflate the near-term price for the benefit of stag investors. Institutional stag buying can also be a factor for IPO issuance. In some instances, institutions may take large initial share positions in a new issuance which can positively influence the security’s price in their favor.
Bulls, Bears and Stag Investing
Bullish and bearish are the two most common terms used to describe the thought processes and actions of an individual investor. These mentalities are based around the intentions of investors who seek to gain from market trends. A bullish investor, or one who believes in bull markets, is a person who assumes that the markets will positively increase over time. Buy-and-hold strategists are normally bull investors. Bearish investors, on the other hand, are those people who believe that the stock market dips in the near-term or long-term, and aims to profit off the dips.
Stag investing involves some components of these strategies but also integrates an additional short-term trading element. Stag investors do not rely on traditional investment strategies that require investing for intermediate to long-terms. Conversely, these investors seek to integrate bullish or bearish concepts with the act of short-term trading that seeks to profit from some of the market’s anomalies.
Stag investing can be risky as it generally defies efficient market theory. However, it can be successful since short-term anomalies exist in all market scenarios as markets move towards efficiency. In order to benefit from some of the potential profits available from stag investing, investors are typically required to have significantly large amounts of capital which helps to profit from short-term trading opportunities.